2QFY2017 Result Update | Pharmaceutical
November 16, 2016
Aurobindo Pharma
BUY
CMP
`733
Performance Highlights
Target Price
`877
Y/E march (` cr)
2QFY17 1QFY17
% chg (QoQ) 2QFY16
% chg (yoy)
Investment Period
12 months
Net sales
3,715
3,664
1.4
3,280
13.3
Other income
82
78
5.4
65
26.2
Stock Info
Operating profit
869
828
5.0
722
20.3
Interest
18
14
29.0
82
(78.6)
Sector
Pharmaceutical
Adj. Net profit
606
585
3.5
454
33.5
Market Cap (` cr)
42,890
Source: Company, Angel Research
Net debt (` cr)
3,265
Beta
1.2
Aurobindo Pharma (APL) posted numbers lower than expected on sales and net
52 Week High / Low
895/582
profit front, while OPM was more or less in line with expectations. On sales front,
the company posted sales of `3715cr vs. `3,900cr expected vs. `3,280cr in
Avg. Daily Volume
175,012
2QFY2016, posting a yoy growth of 13.3%. On the operating front, the EBITDA
Face Value (`)
1
margin came in at 23.4% vs. 24.1% expected and vs. 22.0% in 2QFY2016.
BSE Sensex
26,305
Consequently, the Adj. PAT came in at `606cr vs. `660cr expected vs. `454cr in
Nifty
8,108
2QFY2016, a yoy growth of 33.5%. Apart from better than expected OPM, the
Reuters Code
ARBN.BO
company also posted higher than expected other income (`82cr in 2QFY2017
Bloomberg Code
ARBP@IN
vs. `65cr in 2QFY2016). We maintain our Buy rating on the stock.
Sales marginally lower than expected: Aurobindo Pharma posted numbers lower
Shareholding Pattern (%)
than expected on sales and net profit front, while OPM was more or less in line
Promoters
53.8
with expectations. On sales front, the company posted sales of `3715cr vs.
MF / Banks / Indian Fls
10.2
`3,900cr expected vs. `3,280cr in 2QFY2016, posting a yoy growth of 13.3%.
FII / NRIs / OCBs
27.0
The formulation sales (`3,004cr) posted a yoy growth of 12.4%, while API
Indian Public / Others
9.0
(`768.8cr) posted a yoy growth of 11.3%. On the operating front, the EBITDA
margin came in at 23.4% vs. 24.1% expected and vs. 22.0% in 2QFY2016.
Consequently, the Adj. PAT came in at `606cr vs. `660cr expected vs. `454cr in
Abs. (%)
3m 1yr
3yr
2QFY2016, a yoy growth of 33.5%. Apart from better than expected OPM, the
Sensex
(6.6)
2.7
28.9
company also posted higher than expected other income (`82cr in 2QFY2017
Aurobindo
(1.9)
(11.7)
419.7
vs. `65cr in 2QFY2016).
Outlook and valuation: We estimate the company’s net sales to log a CAGR of
3-year daily price chart
15.1% over FY2016-18E to `18,078cr on back of US formulations, which will be
1,000
supplemented through the recent acquisitions of the Western European
formulation businesses of Actavis and US’ Natrol. The acquisitions have also led
800
APL to become a >US$2bn sales company, with ~80% of sales being accounted
600
by formulations. We recommend a Buy rating.
400
Key financials (Consolidated)
200
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
Net sales
12,043
13,651
15,720
18,078
0
% chg
49.8
13.3
15.2
15.0
Adj. Net profit
1,619
1,982
2,418
2,763
% chg
21.5
22.4
22.0
14.2
Source: Company, Angel Research
EPS (`)
27.7
33.9
41.4
47.3
EBITDA margin (%)
20.6
21.7
23.7
23.7
P/E (x)
26.4
21.6
17.7
15.5
RoE (%)
36.4
32.5
29.6
26.1
RoCE (%)
25.3
24.8
24.0
22.5
P/BV (x)
4.2
6.1
4.6
3.6
Sarabjit Kour Nangra
EV/Sales (x)
2.2
3.6
3.1
2.7
+91 22 3935 7800 Ext: 6806
EV/EBITDA (x)
10.6
16.6
13.3
11.5
[email protected]
Source: Company, Angel Research; Note: CMP as of November 15, 2016
Please refer to important disclosures at the end of this report
1
Aurobindo Pharma | 2QFY2017 Result Update
Exhibit 1: 2QFY2017 performance (Consolidated)
Y/E March (` cr)
2QFY2017
1QFY2017
% chg (QoQ) 2QFY2016
% chg (YoY) 1HFY2017 1HFY2016
% chg (YoY)
Net sales
3,715
3,664
1.4
3,280
13.3
7,418
6,594
12.5
Other income
82
78
5.4
65
26.2
148
152
(2.3)
Total income
3,797
3,742
1.5
3,345
13.5
7,566
6,745
12.2
Gross profit
2,085
2,027
2.9
1,811
15.2
4,111
3,624
13.4
Gross margins
56.1
55.3
55.2
55.4
55.0
Operating profit
869
828
5.0
722
20.3
1,694
1,394
21.5
OPM (%)
23.4
22.6
22.0
22.8
21.1
Interest
18
14
29.0
82
(78.6)
11
99
(89.0)
Dep & amortisation
110
106
3.7
93
18.8
216
182
19.2
PBT
823
786
4.8
613
34.4
1,615
1,265
27.7
Provision for taxation
224
201
11.5
162
38.1
425
340
24.9
Net profit
599
585
2.5
450
33.1
1,190
925
28.7
Less : Exceptional items (gains)/loss
-
-
-
0
-
-
MI & share in associates
(6)
(1)
-
(1)
-
(2)
-
PAT after Exceptional items
606
585
3.5
454
33.5
1,191
926
28.6
Adjusted PAT
606
585
3.5
454
33.5
1,191
926
28.6
EPS (`)
10.4
10.0
7.8
20.4
15.9
Source: Company, Angel Research
Exhibit 2: Actual v/s Estimate
(` cr)
Actual
Estimate
Variation %
Net sales
3,715
3,900
(4.7)
Other operating income
82
65
26.2
Operating profit
869
941
(7.6)
Tax
224
227
(1.2)
Adj. Net profit
606
660
(8.3)
Source: Company, Angel Research
Revenue up by 13.3% yoy; marginally lower than our expectation: On sales front,
the company posted sales of `3715cr vs. `3,900cr expected vs. `3,280cr in
2QFY2016, posting a yoy growth of 13.3%. The formulation sales (`3,004cr)
posted a yoy growth of 12.4% and constituted around 79.6% of overall sales, while
API (`768.8cr) posted a yoy growth of 11.3%. The US business, which contributed
46% to the gross sales, witnessed a yoy growth of 17.8% in 2QFY2017.
In the formulation segment, the US (`1,735cr) posted a yoy growth of 17.8%,
while Europe & ROW (`990cr) posted a yoy growth of 7.6%. ARV (`279cr) posted
a yoy de-growth of 0.6%. Overall, formulations now contribute around 79.6% of
sales, while the balance is accounted by APIs. The company has 269 approved
ANDAs including 41 tentative approvals.
During 2QFY2017, the company filed 9 ANDAs with the USFDA, i.e. 6 in the oral
category and 3 in the injectable category. The company received 17 ANDA
approvals from the USFDA including 15 final approvals and 2 tentative approvals
during the quarter.
November16, 2016
2
Aurobindo Pharma | 2QFY2017 Result Update
Exhibit 3: Sales break-up (Consolidated)
(` cr)
2QFY2017
1QFY2017
% chg (qoq)
2QFY2016
% chg (yoy)
1HFY2017
1HFY2016
% chg
Formulations
3,004
3,033
(0.9)
2673
12.4
6,036
5,318
13.5
US
1,735
1,704
1.8
1473
17.8
3,439
2,907
18.3
Europe & ROW
990
1,026
(3.5)
920
7.6
2,016
1,845
9.3
ARV
279
303
(8.1)
280
(0.6)
582
566
2.7
API
769
735
4.7
691
11.2
1,503
1,415
6.2
SSP
511
495
3.3
428
19.6
1,006
906
11.1
Cephs
258
240
7.5
264
(2.3)
497
509
(2.3)
NPNC
3,773
3,767
0.1
3364
12.1
7,540
6,733
12.0
Source: Company, Angel Research
OPM expands to 23.4%: On the operating front, the EBITDA margin came in at
23.4% vs. 24.1% expected and vs. 22.0% in 2QFY2016. Apart from the gross
margin expansion (which came in at
56.1% in 2QFY2017 vs.
55.2% in
2QFY2016), lower expenses during the quarter aided the OPM expansion. Other
expenses posted a yoy growth of 10.8%.
Exhibit 4: OPM Trend
24.0
23.4
23.5
23.0
22.6
22.5
22.0
22.0
22.1
21.5
22.0
21.0
20.5
20.0
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Source: Company, Angel Research
Net profit marginally lower than estimate: Consequently, the Adj. PAT came in at
`606cr vs. `660cr expected vs. `454cr in 2QFY2016, a yoy growth of 33.5%.
Apart from better than expected OPM, the company also posted higher than
expected other income (`82cr in 2QFY2017 vs. `65cr in 2QFY2016).
November16, 2016
3
Aurobindo Pharma | 2QFY2017 Result Update
Exhibit 5: Adj. net profit
700
606
585
600
562
525
500
451
400
300
200
100
0
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Source: Company, Angel Research
Management takeaways
At the end of 2QFY2017, the company had filed 412 ANDAs, with 284 final
approvals, and 41 tentative approvals.
Depot injectable trials to commence toward end of CY2018, which will lead
the R&D to rise toward 7-8%.
R&D as % of sales to be ~4-4.5% in FY2017.
Tax rate to be ~26-27% in FY2017.
Recommendation rationale
US and ARV formulation segments - the key drivers for base business: APL’s
business will primarily be driven by the US and ARV segments on the
formulation front. The company has been an aggressive filer in the US market
with 403 ANDAs filed until 1QFY2017. Amongst peers, APL has emerged as
one of the top ANDA filers. The company has aggressively filed ANDAs in the
last few years and is now geared to reap benefits, even though most of the
filings are for highly competitive products. Going ahead, with US$70bn going
off-patent in the US over the next three years, we believe APL is well placed to
tap this opportunity and is one of the largest generic suppliers. The company
enjoys high market share as it is fully integrated in all its products apart from
having a larger product basket. Also, the company plans to launch
18
injectables in the next 2 years, which would drive its growth and profitability.
The US revenue has grown at a CAGR of 31% over FY2009-2015 to
`4,832cr. Going forward, the US business of the company is expected to post
a CAGR of 15% over FY2016-18E.
Acquisitions to augment growth and improve sales mix: APL announced the
signing of a binding offer to acquire commercial operations in seven Western
European countries from Actavis. The net sales for the acquired businesses
were around EUR320mn in 2013 with a growth rate of over 10% yoy. With
this, the European sales of the company would now be ~EUR400mn.
Although these businesses are currently loss-making (by around EUR20mn),
November16, 2016
4
Aurobindo Pharma | 2QFY2017 Result Update
APL expects them to return to profitability in combination with its vertically
integrated platform and existing commercial infrastructure.
The acquisition will make APL one of the leading Indian pharmaceutical
companies in Europe with a position in the top 10 in several key markets,
which it plans to leverage to supply or widen its product portfolio through
introduction of its own products, especially high margin products like
injectiables.
Also, in December 2014, Aurobindo USA, spent US$132.5mn to acquire the
assets of Natrol with an agreement to take on certain liabilities. With this
acquisition, the company gets an entry into the nutraceutical markets.
Aurobindo USA believes that Natrol is an excellent strategic fit and provides
the right platform for creating a fully-integrated OTC platform in the USA and
in other international markets. Natrol, which manufactures and sells nutritional
supplements in USA and other international market, provides Aurobindo
with-strong brand reputation and presence in a variety of attractive
supplement markets. Natrol has a proven performance in the mass market,
health food and specialty channels, and has existing long term relationships
with key distribution and retail partners. It addresses a broad range of
consumers and has an effective growth strategy to expand market penetration.
Outlook and valuation
We estimate the company’s net sales to log a CAGR of 15.1% over FY2016-18E to
`18,078cr on the back of US, which accounts for the largest portion of its product
pipeline. This, along with the recent acquisitions of the Western European
formulation businesses of Actavis and US’ Natrol, will led APL to become a
>US$2bn sales company, with ~ 80% of sales being accounted by formulations.
We maintain our Buy rating on the stock.
Exhibit 6: Key assumptions
FY2017E
FY2018E
Sales Growth (%)
15.2
15.0
Operating Margins (%)
23.7
23.7
Capex (`cr)
800
800
Source: Company, Angel Research
November16, 2016
5
Aurobindo Pharma | 2QFY2017 Result Update
Exhibit 7: One-year forward PE
900
800
700
600
500
400
300
200
100
0
5x
10x
15x
20x
Source: Company, Angel Research
Exhibit 8: Recommendation summary
Company
Reco
CMP Tgt. price Upside
FY2018E
FY16-18E
FY2018E
(`)
(`)
% PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Neutral
631
-
-
20.7
2.8
13.0
(10.8)
27.5
25.3
Aurobindo Pharma Buy
733
877
19.7
15.5
2.7
11.5
18.1
22.5
26.1
Cadila Healthcare
Accumulate
358
400
11.7
18.7
2.9
13.0
13.4
22.7
25.7
Cipla
Neutral
553
-
-
20.3
2.6
14.0
20.4
13.5
15.2
Dr Reddy's
Neutral
3,309
-
-
22.9
2.9
13.3
1.7
16.2
15.9
Dishman Pharma
Neutral
229
-
-
20.2
3.0
10.0
3.1
10.3
10.9
GSK Pharma*
Neutral
2,650
-
-
43.6
6.6
32.0
17.3
35.3
32.1
Indoco Remedies
Sell
286
240
(18.5)
17.9
2.1
11.5
33.2
19.1
20.1
Ipca labs
Accumulate
540
613
13.4
27.5
1.9
12.4
36.5
8.8
9.4
Lupin
Buy
1,440
1,809
25.6
20.8
3.4
12.8
17.2
24.4
20.9
Sanofi India*
Neutral
4,253
-
-
24.7
2.6
17.7
22.2
24.9
28.8
Sun Pharma
Buy
683
944
38.3
20.8
4.1
13.2
22.0
33.1
18.9
Source: Company, Angel Research; Note: *December year ending
November16, 2016
6
Aurobindo Pharma | 2QFY2017 Result Update
Company background
Aurobindo Pharma manufactures generic pharmaceuticals and APIs. The
company’s manufacturing facilities are approved by several leading regulatory
agencies like the USFDA, UK MHRA, WHO, Health Canada, MCC South Africa
and ANVISA Brazil among others. The company’s robust product portfolio is
spread over six major therapeutic/product areas encompassing antibiotics,
antiretrovirals, CVS, CNS, gastroenterological, and anti-allergics. The company
has acquired the generic business of Actavis, which has made it a US$2bn
company and a leading company in Europe. With this acquisition, formulations
now contribute around 80% to the company’s sales (as in FY2015).
November16, 2016
7
Aurobindo Pharma | 2QFY2017 Result Update
Profit & loss statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Gross sales
5,863
8,198
12,221
13,878
15,959
18,353
Less: Excise duty
80
159
178
227
239
275
Net Sales
5,783
8,038
12,043
13,651
15,720
18,078
Other operating income
72
61
77
245
245
245
Total operating income
5,855
8,100
12,121
13,896
15,965
18,323
% chg
26.5
38.3
49.6
14.6
14.9
14.8
Total Expenditure
4,966
5,968
9,557
10,691
12,001
13,802
Net Raw Materials
2,792
3,606
5,506
6,158
6,288
7,231
Other Mfg costs
578
804
1,204
1,365
1,572
1,808
Personnel
663
832
1,302
1,551
1,783
2,051
Other
932
726
1,545
1,617
2,358
2,712
EBITDA
817
2,071
2,486
2,960
3,718
4,276
% chg
53.2
153.5
20.1
19.1
25.6
15.0
(% of Net Sales)
14.1
25.8
20.6
21.7
23.7
23.7
Depreciation& Amort.
249
313
333
393
532
588
EBIT
568
1,758
2,154
2,567
3,187
3,689
% chg
38.8
209.5
22.5
19.2
24.1
15.7
(% of Net Sales)
9.8
21.9
17.9
18.8
20.3
20.4
Interest & other Charges
131
108
84
159
192
220
Other Income
29
23
81
68
68
68
(% of PBT)
5.3
1.3
3.6
2.5
2.1
1.8
Share in profit of Asso.
-
-
-
-
-
-
Recurring PBT
538
1,735
2,227
2,722
3,309
3,782
% chg
62.3
222.7
28.4
22.2
21.5
14.3
Extraordinary Exp./(Inc.)
163.4
203.1
59.6
-
-
-
PBT (reported)
374
1,532
2,168
2,722
3,309
3,782
Tax
82.7
363.5
596.6
744.4
893.4
1,021.2
(% of PBT)
22.1
23.7
27.5
27.3
27.0
27.0
PAT (reported)
291
1,168
1,571
1,978
2,416
2,761
Less: Minority int. (MI)
(2)
(4)
(5)
(4)
(3)
(2)
PAT after MI (reported)
294
1,172
1,576
1,982
2,418
2,763
ADJ. PAT
432
1,333
1,619
1,982
2,418
2,763
% chg
118.5
208.6
21.5
22.4
22.0
14.2
(% of Net Sales)
5.1
14.6
13.1
14.5
15.4
15.3
Basic EPS (`)
7.4
22.8
27.7
33.9
41.4
47.3
% chg
8.9
208.6
21.5
22.4
22.0
14.2
November16, 2016
8
Aurobindo Pharma | 2QFY2017 Result Update
Balance sheet (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
SOURCES OF FUNDS
Equity Share Capital
29
29
29
58
58
58
Share Application Money
-
-
-
-
-
-
Reserves & Surplus
2,577
3,721
5,127
6,998
9,246
11,838
Shareholders Funds
2,606
3,750
5,156
7,057
9,304
11,896
Minority Interest
11
26
26
60
57
55
Long-term provisions
9
9
24
24
24
24
Total Loans
3,384
3,769
3,864
4,076
5,500
5,500
Deferred Tax Liability
68
205
211
236
236
236
Total Liabilities
6,069
7,760
9,280
11,452
15,098
17,688
APPLICATION OF FUNDS
Gross Block
3,316
4,107
6,095
7,195
7,995
8,795
Less: Acc. Depreciation
1,140
1,461
1,794
2,187
2,718
3,306
Net Block
2,175
2,645
3,752
4,865
5,277
5,490
Capital Work-in-Progress
645
310
310
310
310
310
Goodwill
55
76
64
89
89
89
Investments
22
20
20
0
0
0
Long-term loans and adv.
243
789
486
434
434
436
Current Assets
4,128
5,631
8,279
10,001
12,249
15,113
Cash
208
179
469
834
2,089
2,275
Loans & Advances
332
789
692
784
409
1,625
Other
3,587
4,664
7,118
8,383
9,751
11,213
Current liabilities
1,200
1,730
3,634
4,247
3,261
3,750
Net Current Assets
2,928
3,901
4,645
5,755
8,988
11,363
Mis. Exp. not written off
-
18
5
-
-
-
Total Assets
6,069
7,760
9,280
11,452
15,098
17,688
November16, 2016
9
Aurobindo Pharma | 2QFY2017 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Profit before tax
374
1,532
2,168
2,722
3,309
3,782
Depreciation
249
313
333
393
532
588
(Inc)/Dec in Working Capital
(191)
(457)
(757)
(796)
(1,979)
(2,188)
Less: Other income
29
23
81
68
68
68
Direct taxes paid
(83)
(363)
(597)
(744)
(893)
(1,021)
Cash Flow from Operations
321
1,001
1,066
1,507
900
1,093
(Inc.)/Dec.in Fixed Assets
(283)
(455)
(1,989)
(1,100)
(800)
(800)
(Inc.)/Dec. in Investments
(16)
(2)
-
(20)
-
-
Other income
29
23
81
68
68
68
Cash Flow from Investing
(271)
(435)
(1,908)
(1,051)
(732)
(732)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
288
385
94
213
1,424
-
Dividend Paid (Incl. Tax)
(17)
(102)
(171)
(171)
(171)
(171)
Others
(183)
(879)
1,209
(132)
(167)
(4)
Cash Flow from Financing
88
(596)
1,133
(90)
1,086
(175)
Inc./(Dec.) in Cash
138
(30)
291
365
1,255
186
Opening Cash balances
71
208
179
469
834
2,089
Closing Cash balances
208
179
469
834
2,089
2,275
November16, 2016
10
Aurobindo Pharma | 2QFY2017 Result Update
Key ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
107.9
99.1
32.1
26.4
21.6
17.7
P/CEPS
278.4
39.3
14.4
11.2
18.0
14.5
P/BV
9.8
8.2
5.7
4.2
6.1
4.6
Dividend yield (%)
0.1
0.1
0.1
0.1
0.1
0.1
EV/Sales
5.7
4.5
3.3
2.2
3.6
3.1
EV/EBITDA
48.7
32.0
12.8
10.6
16.6
13.3
EV / Total Assets
4.8
4.3
3.4
2.8
4.3
3.3
Per Share Data (`)
EPS (Basic)
7.4
22.8
27.7
33.9
41.4
47.3
EPS (fully diluted)
7.4
22.8
27.7
33.9
41.4
47.3
Cash EPS
18.6
51.0
65.4
40.7
50.5
57.4
DPS
0.5
0.5
0.5
0.5
0.5
0.5
Book Value
89.5
128.8
176.6
120.8
159.3
203.7
Dupont Analysis
EBIT margin
9.8
21.9
17.9
18.8
20.3
20.4
Tax retention ratio
77.9
76.3
72.5
72.7
73.0
73.0
Asset turnover (x)
1.0
1.2
1.5
1.4
1.4
1.3
ROIC (Post-tax)
8.0
20.1
19.2
19.5
20.0
19.2
Cost of Debt (Post Tax)
3.2
2.3
1.6
2.9
2.9
2.9
Leverage (x)
1.3
1.1
0.8
0.6
0.4
0.3
Operating ROE
14.0
39.5
33.4
28.9
27.1
24.4
Returns (%)
ROCE (Pre-tax)
9.9
25.4
25.3
24.8
24.0
22.5
Angel ROIC (Pre-tax)
11.5
28.5
27.6
27.5
27.9
26.7
ROE
17.5
41.9
36.4
32.5
29.6
26.1
Turnover ratios (x)
Asset Turnover (Gross Block)
1.8
2.2
2.4
2.1
2.1
2.2
Inventory / Sales (days)
98
49
90
95
101
108
Receivables (days)
129
95
93
95
63
63
Payables (days)
78
73
114
119
81
81
WC cycle (ex-cash) (days)
159
145
119
119
135
159
Solvency ratios (x)
Net debt to equity
1.2
1.0
0.7
0.5
0.4
0.3
Net debt to EBITDA
3.9
1.7
1.4
1.1
0.9
0.8
Interest Coverage (EBIT / Int.)
4.3
16.3
25.5
16.2
16.6
16.8
November16, 2016
11
Aurobindo Pharma | 2QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
Aurobindo Pharma
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
November16, 2016
12